Fine Wine

Can premium wine be recession-proof?

Luxury consumer items may well be recession-proof but when it comes to wine, there can be leaks. Kathleen Willcox reports.

Is luxury recession proof? Economists have long declared that ultra-premium fashion, car and wine brands are, at the very least, recession resistant, and while that truism still appears to hold water, there are signs of leaks—especially when it comes to wine.

The global luxury market was projected to close out the year with growth 8-10% year-over year, to reach €1.5 trillion, according to a report issued in November of 2023 by the Boston-based management consulting firm Bain & Company. A post-COVID surge of interest in travel, experiences and social interactions drove the lion’s share of that growth.

The personal luxury market, however, was less robust, growing 4 percent to €362 billion, with distressing “headwinds” heading into the fourth quarter, Bain noted grimly, adding that positive growth in the personal luxury sector is only happening for 65-70% of brands in 2023, whereas 95 percent enjoyed upticks in 2022.

Experiences on the ground in the wine industry as 2023 closed out appear to reflect the mixed picture.

“Business is slowing globally,” a U.S.-based importer of luxury wine who requested to not be named tells the drinks business. “In speaking with both my counterparts and wineries, Asia is a financial disaster, Europe is no better and the US is also showing signs of weakness.

“In the US, we all expected the Covid bubble to burst at some point last year and it never did; until this summer.  Wines that have been typically allocated and in short supply are now available to us with significant increases in the allocations as business around the world falters.”

While macro and microeconomic tensions and political instability loom ominously on the horizon, a recent surge in consumer confidence provides a pocket of hope.

Areas of Weakness

Certain sectors of luxury wine seem especially vulnerable this year.

“The higher end of the major brand markets will likely be impacted, especially the large production wines that cannot easily absorb even small percentage decreases in volume without affecting pricing,” says Jonathan Kleeman, group beverage manager and executive head sommelier at Tom Sellers Story Group.

Certain regions also appear poised for a correction.

“Bordeaux is always first to react to the market because of their direct access,” notes Rocco Lombardo, president at the New York-based fine wine importer Wilson Daniels. “We also haven’t seen a Bordeaux price correction since 2011. The luxury wine business is cyclical and recently, we have seen a reduction in Champagne shipments to the U.S. after a strong three-year upward cycle.”

The $15 and above category is also down, Lombardo continues, after a very strong three years.

Dennis Kreps, co-owner of Napa’s fine wine importer and distributor Quintessential, says that he’s seen the greatest drop-off in interest in brands without a story.

“Wine buyers and consumers alike want more from luxury purchases today,” Kreps says.

“They don’t want a soulless brand; they want wines with meaning, that have been cared for by generations with deep ties to their history, land and future.”

Strength at the Tippety Top

Gold star regions, and brands within them that connected to families and poised at the very pinnacle of perceived excellence will thrive this year, predicts Lombardo.

“Moving into 2024, Burgundy and Piedmont—especially Barolo and Barbaresco, as well as Brunello di Montalcino and Bolgheri—will continue to remain strong,” says Lombardo.

“In those areas, there’s continued dynamic growth and growing interest. With families and brands like Domaine de la Romanée-Conti, Domaine Leflaive, GAJA, Biondi-Santi, Romano Dal Forno, they are recognized as representing the very best, and there is still greater demand than we can meet.”

Lombardo sounds one note of caution, even among these brands: “I don’t think it’s possible to still see the escalation in prices that we have experienced over the last decade.”

Pauline Vicard, co-founder and executive director of ARENI Global, a think tank dedicated to the future of fine wine, concurs, with a few caveats.

“Classic and super iconic wines will continue to maintain a market-leading position and will probably hold their prices,” Vicard says. “But this only applies to 15 or so Burgundy producers, the Bordeaux First Growths and a few California wines such as Harlan Estate and Screaming Eagle. Wines that sit below these icons will probably see their prices fall.”

For producers in this category, like Biondi-Santi, CEO Giampiero Bertolini says he plans to capitalize on his brand’s strong historic roots, while simultaneously catering to a different type of a consumer, in a different way than he and other premium producers would not have considered in the past.

“Just relying on heritage without understanding the changes happening the market isn’t enough,” Bertolini says. “New trends among younger generations, their interest in sustainability and green practices, and the influence of new media channels requires a different approach to reach and engage with consumers.”

How to Address Challenges

Engaging with customers—and acknowledging that what the customer wants now is very different than what they wanted a generation ago—will be essential for continued success moving into 2024.

“Distributors are sitting on 6-12 months of inventory of wines that used to sell out of upon release,” says the U.S.-based luxury importer who asked to remain anonymous. “Retailers, likewise, are not back-filing inventories of luxury cuvees as they did a year ago. It’s a pretty scary time for many of our producers.”

The importer pegs the glut on collectors reducing their buying, and in some cases even selling off parts of their collections.

“These collectors have full cellars and are aging out,” they continue. “I did a dinner for one of our luxury producers recently and I was easily the youngest person in the room by 20 years, and I am in my mid-fifties.  We are not seeing a new wave of younger collectors spending money on luxury cuvees, to replace the older ones.”

A recent Gallup report shows that the percentage of adults age 35 and under who drink has fallen to 62 percent—a reduction of 10 percentage points from a decade ago. And a recent study issued by podcast and consultancy Business of Drinks, 1,300 Gen Z and Millennial consumers fills in details on the importer’s sketch, and explaining why so many are turning away from alcohol more broadly.

Unsurprisingly, price is a “significant factor” in the lack of interest among younger consumers who feel more financially strapped than previous generations did at their age, says Erica Duecy, drinks strategist and co-founder of Business of Drinks. (A recent Harris Poll of 2,000 U.S. adults found that 65 percent of Gen Zers and 74 percent of millennials say they believe they are starting their careers financially further behind than previous generations.)

“Some 60 percent of respondents to our study say that price is extremely or very important in deciding which beverages to buy,” Duecy says, adding that less than one-third spend more than $30 a bottle, and three-quarters rarely or never buy wine above $50.

But what’s possibly worse? Gen Zers perceives wine as “particularly expensive, and offering less value for the money than other alcoholic beverage categories,” Duecy says.

But there are areas of strength that producers and retailers can leverage, Duecy adds, especially when it comes to education.

“Find ways to showcase your wine’s great taste and its excellent value for the money, whether that’s through sampling, messaging or staff recommendations,” Duecy says.

“Those actions can be a key differentiator, and they can drive trial of your brand with younger consumers, which will likely be a necessary step before purchase.”

Social media

But the storytelling also has to happen on socials.

“We were struck by how much family and friend recommendations and social media recommendations shape preferences and drive purchase behavior,” Duecy notes. “Many producers in the wine industry are still focused on critics, points, and scores — as well as features in wine publications — but this isn’t where younger consumers are looking.”

Capitalising on wine’s ability to connect people to new places, flavours and stories will be the only way forward for current and would-be wine lovers, predicts Matteo Lunelli, president of Altagamma Foundation, a cohort of leading Italian companies in the luxury and cultural space, and president and CEO of Ferrari Trento.

“I expect to see growth in fine wine consumption in luxury hotels, resorts and fine dining,” Lunelli predicts. “Consumers will reapproach luxury, but beyond products, act on a desire to travel and enjoy social life.”

The top 1% of wine producers will likely maintain their profits, if they don’t actively grow them, without doing much.

But everyone else—and the top 1%, if they want to attract younger people who don’t want to spend more than $50 a pop—will need to rev their story-telling engines and find new ways to connect with people online and in the places they go to relax.

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